State Budget Talks Show Signs of Progress : Deficit: Wilson compromises on Maddy’s idea to add $800 million to school funding. Legislative leaders expect a vote over the weekend, but passage is far from certain.

Showing rare signs of progress in slow-moving budget talks, Gov. Pete Wilson and key legislative leaders agreed Friday night to offer lawmakers a possible compromise that would provide schools with $800 million more than the governor originally proposed.

Despite the additional cost, the proposal to increase school funding is viewed as an important first step toward closing the looming $14.3-billion budget deficit because of the complicated nature of education politics.

Senate Republican Leader Ken Maddy of Fresno, who came up with the idea, said he hopes the budget agreement “starts to roll if we get by this hurdle.”

Maddy said Wilson and other legislative leaders agreed to try a piecemeal solution to the budget problem, beginning with school funding, when it became clear during a closed-door meeting in the governor’s office that it would be impossible to reach agreement on a package of cuts and tax increases that would erase the deficit.

Legislative leaders said they will vote on the measure this weekend, working today and Sunday.

Passage of the measure appeared far from certain.

For one thing, lawmakers are being asked to approve the biggest item in the budget--an $18-billion-plus appropriation--without any agreements on other tax or spending proposals. If lawmakers approve the education funding plan but balk at passing the $7-billion package of tax increases that Wilson has proposed, then all other state programs, particularly health and welfare, will have to suffer much deeper budget cuts.

Maddy said the present proposal, if ultimately approved by the Assembly and Senate, would represent “a major victory” for schools.

He said that Wilson, in embracing the plan, had made “a major concession. . . . He has gone a lot further than anybody ever thought he would or could.”

Wilson had sought to keep state financial aid for schools to $18 billion, but apparently could find little legislative support for funding at that level.

The proposed compromise would allow public schools and community colleges full funding under Proposition 98--$18.4 billion--and provide them with an additional $400 million in financial aid during the 1991-92 budget year that begins July 1.

The complex proposal would spread school funding over two years, requiring the Legislature to take back $400 million in money owed this year because schools received more than they were entitled to under Proposition 98.

Democrats agreed earlier to allow the state to reclaim $835 million of the Proposition 98 overpayments that went to school districts, but have refused since then to allow for the “recapture” of the additional $400 million.

As part of the compromise, the Wilson-Maddy plan requires that lawmakers agree to claim the $400 million. That money, in turn, would be used to fulfill all the funding requirements of Proposition 98, the voter-approved initiative that provides that schools receive 40% of general state tax revenues but also allows for a decrease in funding during recessionary years when tax collections decline.

In addition, the proposal calls for raising another $300 million by allowing lawmakers to appropriate money from surpluses on investments in the $65-billion Public Employees Pension Fund.

Public employees have fought similar proposals in the past.

Lawmakers did not even begin their discussions until the dinner hour. The talks were delayed when Assembly Speaker Willie Brown (D-San Francisco) had difficulty getting back to the capital from San Francisco. Brown said his delay was caused by “family business.”

Times staff writer Jerry Gillam contributed to this article.